Developing a financial plan for personal or family needs is very complicated and requires precision and long time. But the benefits are something you will want to do it for. One of the great benefits is helping us to “save”.
Lots of people have a desire to save some money, but can’t make it happen because they don’t have personal financial planning. The key element of financial planning is self-monitoring. Strong controls on finances will greatly help to achieve the goal of saving. Financial planning that you need to do doesn’t have to be as complicated. The following are important components that we need to keep in financial planning:
1. Calculate cash flow
First, determine the revenue. Include all income such as monthly salary, rental property income (home, boarding, car, etc.), and all your monthly routine income. Next, determine the amount of spending. Write down all the expenses in detail, whether it is paid cash or use a credit card. Remember to write down all expenses including the smallest ones. The key to good financial planning is the accuracy of each supporting component. Bundle those expenditures in 3 sections: regular routine expenditures, non-regular routine expenditures, and non-routine expenditures.
- Permanent routine expenditures are monthly routine expenses and the amount is always the same, such as mortgage, car payments, insurance, etc.
- Regular routine expenditures are routine monthly expenses but the amount is constantly changing, such as telephone bills, credit card bills, daily meal expenses, transportation costs, children's school fees, and benefits for your parents.
- Non-routine expenditures are not always monthly expenses, such as clothing shopping, hospital fees, movies, fine dining, etc.
Once all are recorded, you will begin to have a better overview of where your money comes from and where it is spent.
2. Spending less than income
The simple science of saving is spending should be less than income. The remaining money will be saved in savings. Take a good look at your expenses. When spending is greater than income, start to reduce your spending.
To get started, start from spending a little more less. If it turns out you are spending too much clothing, try to shop only once and select only a maximum of 2 clothes in 1 month. You also need to look into regular, non-fixed spending. If the internet bill turns up, try choosing a cheaper internet package.
If you use taxi wherever you go, try to occasionally take a public bus to save expenses. Healthy living can also help you reduce hospital costs. The next step is fixed expenditure. If it turns out here is the source of financial "leakage", try to make radical changes in your lifestyle. If the car installment burden, replace with a motorcycle or public transport. If rent is very expensive, move to a simpler home.
3. The 50-30-20 formula
Simple formulas of saving are usually 10% -15% of income after taxes. Bigger is better. But there is a new formula proposed by Harvard professor Elizabeth Warren: the 50-30-20 formula.
50%: regular routine expenditure + routine expenditures are not fixed
30%: non-routine expenditure
Perhaps all of those steps above look too confusing just to save a fraction of our income. But believe me, this financial planning is the beginning to get a stronger and more stable personal or family financial.